Cheap loans scheme fails to reach first-time buyers

p37 A woman house hunting, looking through a high street estate agent's window.
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First-time buyers and those with small deposits have seen barely any of the benefit of cheaper loan costs from the Bank of England’s Funding for Lending scheme, according to new figures.

While banks and building societies have been using the cheap cash on offer from the Bank under the initiative to slash rates on mortgage products for less risky borrowers, those with much smaller deposits are largely missing out, according to financial information provider Moneyfacts. Borrowers with a 5% deposit must still pay 5.84% on average for the typical two-year fixed rate £150,000 mortgage, just 0.19% cheaper than the 6.03% average rate on offer before the FLS began in August.

Those with bigger 40% deposits are gaining savings nearly three times as big, as average loan rates for similar deals have been trimmed from 4.47% to 3.93%, a fall of more than half a percentage point.

There are just four extra deals on the market — 66 in total — catering for borrowers with a 5% deposit since August.

Tracker rates for those homebuyers with smaller deposits have also fallen by less than 0.1 percentage points.

A Moneyfacts spokeswoman said: “Recently several lenders have launched new products with attractive low rates. But it appears that these cuts in rates are targeted to the already serviced 60% loan-to-value market and often compensated by large arrangement fees.

“Although it is good to see an increase in choice in the mortgage market, it does little to reduce the worry of those who require a higher loan-to-value deal as these deals seem to not be as affected by the FLS scheme.”